Wages are expected to increase at a rate higher than inflation for the first time since before the pandemic, new data has found.
The fourth Global Salary Planning report by UK-based pay and reward consultancy 3R Strategy showed that the gap between inflation and pay rises has shrunk, with 2024 figures suggesting a median pay budget of 4% compared to the Office for National Statistics latest inflation rate standing at 1.7%.
According to the study, which surveyed organisations in more than 40 countries and across 20-plus industries globally, next year could also see higher-than-inflation increases, with budgets expected to be 3.5% while inflation is forecast at 2% to 2.5% in 2025.
The report asked respondents to submit pay review data for 2024, as well as their 2025 forecasts as a percentage of the base salary bill. It also examined pay transparency, communication, performance-related pay, the use of salary data, and gender pay gap reporting.
Pay increases and inflation
Wage growth slows but remains ahead of inflation
Figures showed that in 2022, median pay budgets were mostly set at 5% while inflation soared to 8.6%. A year later, pay rates remained the same while inflation fell to 6.3%. However, this year’s data paints a different picture, indicating that UK employees will see their pay packets rise above inflation rates for the first time post-Covid.
In the UK, the report revealed the financial services sector has the biggest pay budgets for 2025 at 5%, while the charity and media and arts sectors will see lowest rises at 2% and 2.8%, respectively.
But employers will need to factor the planned national living wage rate increase of 6.7% from April 2025 into their planned budgets, 3R Strategy has warned.
It also highlighted that with employer National Insurance contributions set to rise from 13.8% to 15%, the impact on pay budgets remains to be seen, but some organisations may pass this on to the workforce by reducing their wage increase budget.
Commenting on the data, founder and managing director of 3R Strategy Rameez Kaleem said he was pleased to note that UK employees are expected to see real growth in their salaries for the first time since the pandemic, in contrast to last year’s findings.
He said: “As UK inflation has declined significantly over the past year and interest rates have begun to ease, this is an encouraging sign for all employees struggling with the high cost of living. We hope our report will serve as a valuable resource for 2025 salary planning to help businesses attract and retain talent.”
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